International Mutual Funds Pummeled in First Quarter

INTERNATIONAL equity mutual funds were pummeled during the first quarter of 1995, even as United States equity mutual funds were up in value, posting their best gains in more than two years. But experts see the outlook for international funds improving in the months ahead, barring the unexpected.

''Investors should have at least 10 percent of their portfolio in international equities, and maybe as much as 30 percent,'' says Rao Chalasani, chief investment strategist for investment house Kemper Securities Inc. in Chicago. ''Most of the losses in the international mutual funds occurred during January and February,'' he says, ''but many of the overseas markets have rebounded in March, in some cases up substantially.''

The average of some 1,748 domestic US stock funds Lipper Analytical Services Inc. monitors rose 7.16 percent in the first quarter; but Lipper's average of some 639 world equity funds showed a loss of 3.11 percent during that same period.

Emerging market funds averaged a loss of more than 11 percent, according to Lipper. Latin American funds were particularly hard hit, down more than 30 percent, reflecting turbulence stemming from the Mexican financial crisis.

European funds posted a gain of slightly more than 2 percent.

The uptick in the US domestic stock funds reflects strength among the large blue-chip companies listed in the Dow Jones industrial average, and the Standard & Poor's 500 index, experts say. Both indexes have been setting new highs this year.

Anumber of overseas stock markets are now showing a rebound, which could mean earnings gains for some mutual-fund investors during the rest of this year. According to Morgan Stanley Capital International, an investment-research house, world equity markets rebounded in March. In fact, the upswing was so sharp as to push Morgan Stanley's world equity index up slightly more than 4 percent for the first quarter, based on US dollars. During March, 14 of the 22 developed-country markets Morgan Stanley follows were up.

Mr. Chalasani likes Europe, particularly Germany and Britain, and, in Asia, India and South Korea. He says overseas markets may outperform the US market in the second half of 1995.

Over the past 15 years, US purchases of overseas stocks have grown at a compounded rate of around 22 percent annually, notes the Securities Industry Association. Still, total foreign equity holdings by US investors represent only around 6 percent of their total holdings, the SIA says.

According to Merrill Lynch, between 1984 and 1993, the US equities market ranked only 13th among global stock markets based on return in US dollars. Hong Kong was first, followed by Spain and France.